EY Tanzania explains the VAT framework in the country, including VAT applicable rates and discusses the ambiguity of some of the provisions of the VAT Act.
Applicable VAT rates on goods and services in Tanzania
VAT shall be imposed and payable on taxable supplies and taxable imports as provided for under section 3 of the VAT Act, 2014.
Currently, in Mainland Tanzania the following VAT rates are applicable:
– Standard rate of 18% which applies to supplies of goods or services in Tanzania;
– Zero rate (0%) which applies to exports;
– Special relief was abolished by the VAT Act, 2014. However, special relief is “grandfathered” to taxable persons who entered into a binding agreement relating to exploration and prospecting of minerals, gas or oil with the Government of Tanzania before 1st July 2015; and
– Exempt supplies are provided for under the exempt schedule of the VAT Act, 2014.
Examples of goods and services taxable at 0% rate are:
– Exports of goods;
– Supplies of goods and supplies of immovable property to an address outside Tanzania; and
– Exports of taxable services to a person outside the United Republic of Tanzania who effectively enjoys the services outside the United Republic;
Examples of supplies and imports exempt from VAT are:
– Agricultural, horticultural or forestry machinery for soil preparation or cultivation except lawn mower or sports ground rollers and parts;
– Health care services (e.g., medical, dental, nursing, convalescent, rehabilitation) provided by an institution approved to provide such services, under the supervision or control of a person who is registered as being qualified to perform the services under Tanzania laws or whose qualifications to perform the services are recognized in Tanzania;
– Transportation of persons by any means of conveyance other than taxicab, rental car or boat;
– Petroleum products and equipment for natural gas (e.g. petrol, diesel, kerosene, CNG plants equipment, natural gas pipes, transportation and distribution pipes);
– Intermediary services (e.g., financial services supplied free of charge, insurance premiums for aircraft);
– Import of goods by a registered and licensed explorer or prospector for exclusive use in oil, gas or mineral exploration or prospection activities, if also relieved from customs duties;
– Educational services; and
– Immovable property (e.g., sale of vacant land).
Recent VAT changes in specific sectors
Based on the VAT Act, 2014, supply of tourist guiding, game driving, water safaris, animal or bird watching, park fees and ground transport services are taxable at 18% with effect as per 1 July 2016. These services were exempt for VAT purposes in the past.
Supply of Financial Services
Financial services were exempted as provided for under paragraph 13 of the VAT exempt schedule of the VAT Act, 2014.
Based on the amendments passed by the Finance Act 2016, this exemption was deleted and substituted with the following, “supply of financial services supplied free of charge, insurance premiums for aircraft, life insurance or health insurance, insurance for workers compensation”. This basically means that most of the financial services are now taxable at a standard rate of 18% as most of such services are not provided free of charge.
Most of charges by financial institutions such as bank charges and commissions are typically not supported by fiscalised invoices which are used by customers to claim input VAT (if registered with VAT). In absence of fiscalised invoices no input VAT can be claimed.
Cargo in transit
Based on section 59 (3) (a) of the VAT Act 2014, the supply of international transport services are zero-rated.
Section 2 of the VAT Act, 2014, defines the term “international transport services” to mean services, other than ancillary transport services of transporting passengers or goods by road, rail, water or air, from a place outside Tanzania to another place outside Tanzania, from a place outside Tanzania to a place in Mainland Tanzania, or from a place in Mainland Tanzania to a place outside Tanzania.
The term “ancillary transport services” has been defined to include stevedoring services, lashing and securing services, cargo inspection services, preparation of customs documentation, container handling services and the storage of transported goods or goods to be transported.
In this case, all ancillary transport services as defined in relation to goods in transit are now taxable at VAT standard rate of 18%.
Section 50 (1) of the VAT Act, 2014 provides that, a supply of telecommunication services shall be treated as a supply made in Mainland Tanzania, if a person in Mainland Tanzania (who controls the commencement of the supply or pays for the supply or contracts the supply), other than a telecommunications service provider, initiates the supply from a telecommunications service provider, whether or not the person initiates the supply on his own behalf. This supply will be taxed at a standard rate of 18%.
If it is impractical for the supplier to determine the location of a person as above due to the type of service or the class of customer, the person who initiates the supply of telecommunication service shall be the person to whom the invoice for the supply is sent.
This provision shall not apply if the person who initiates the call in Mainland Tanzania is a non-resident who is global roaming while in Mainland Tanzania and who pays for the supply under a contract made with a non-resident telecommunications service provider, through a place outside the United Republic at which the non-resident is established.
Ambiguity of some provisions in VAT Act, 2014
– Nonresidents carrying on economic activities in Mainland Tanzania without having a fixed place in Tanzania and makes taxable supplies are required to be registered with VAT through VAT representatives. However, in practice nonresident companies with only VAT cannot be registered prior to being registered with BRELA which exposes them to the risk of a taxable presence for corporate income tax purposes (“permanent establishment”).
– Non-clarity on how to claim input VAT paid to banks as most of banks do not issue fiscal invoices for some services as normally required by the VAT Act, 2014.
– In relation to VAT applicable for financial services, financial institutions are still not clear on whether some of the supplies made by banks should be exempt, taxable or out of scope of VAT e.g. interest income.
– The proper treatment of VAT on commissions received by Tanzanian agents working on behalf of non-resident shipping lines.